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Bank Leumi Chief Executive Resigns

Ernst Japhet resigned Sunday night as chairman and chief executive officer of Bank Leumi, one of Israel’s largest banks. He was promptly replaced in both capacities.

Japhet was the second top bank executive to step down since the special commission headed by Supreme Court Justice Chaim Beisky released a report on April 20 of its investigation into the 1983 collapse of bank shares and the ensuing panic on the Tel Aviv Stock Exchange. The Beisky commission recommended that the heads of the country’s five leading banks be forced to quit within 30 days.

Giora Gazit, board chairman of the Bank Hapoalim, resigned immediately after publication of the report. The bank directors announced only last Friday that he would be replaced by Amiram Sivan, 48, a former Director General of the Finance Ministry.

Japhet’s replacements were announced by the Bank Leumi’s directors after a two-hour meeting Monday. Eli Hurwitz was named the new chairman and Mordechai Einhorn will take over as chief executive officer. Hurwitz said he would resign his position as chairman of the Israel Manufacturers Association but would continue as managing director of Teva, a pharmaceutical company.

Hurwitz, who has no banking experience, indicated that he would leave operations in the hands of Einhorn, a veteran banker. Bank sources said Japhet may be appointed to a position with Bank Leumi abroad. But it is debatable whether the Beisky commission’s recommendations, adopted by the Knesset’s State Control Committee, would allow this.

The report was a scathing criticism of the bank leaders and the financial establishment in general. It stated flatly that the people in charge when the share collapse occurred should not be entrusted in the future with posts of responsibility at home or abroad. The banks were accused of grossly inflating the value of their shares to mislead the public.

The collapse occurred when a combination of deteriorating economic conditions and sharp devaluations of the Shekel triggered a mass sell-off of bank shares by investors who used the cash to buy foreign currency.

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